What happens if I pay into too many Isas?

I've read that savers are only allowed one cash Isa a year. What happens if I pay into too many Isas? Anon.

Topping up: But remember the 'one Isa' rule before you do it

Dan Hyde, of This is Money, replies: You are quite correct, the taxman only allows savers to pay into one cash Isa and one stocks & shares Isa each April to April tax year.

It's worryingly simple to break this rule - for example, if you top up an an existing Isa in April and then open a new account the following March to exhaust the allowance eleven months later.

If you have mistakenly contributed to two cash Isa accounts, don't worry, it's easily resolved.

I asked Patrick O'Brien, of HMRC, what the best course of action is.

He says: 'You should not try to correct this mistake yourself. Instead, you should call the Isa Helpline on 0845 604 1701 and explain the problem to them. They will advise you what action you need to take.'

Don't take the cash out because you'll not get a fresh Isa allowance (£5,100 for the 2010-2011 tax year). As soon as it's paid in, that is counted as an Isa contribution whether you take it out or not.

The good news is HMRC is surprisingly lax when it comes to punishing savers for disobeying the rules. But only if it's your first time.

If you do it 'deliberately or carelessly' or are a repeat offender, then they'll demand you pay tax on any interest earned (or give back tax relief on investments if it's a stocks & shares Isa) on the second account.

If it was a genuine accident, then it's likely you'll get away without punishment and get to keep the tax-free Isa status on the cash.

However, if you break the £5,100 annual cash Isa limit (rising to £5,340 on 6 April), then you'll certainly have to pay the tax you weren't charged on the interest earned and lose the Isa status on the surplus.

You can transfer previous years' Isa savings to a new account and, as long as you don't put any extra money in, it won't affect your ability to open a new Isa.

If you do want to top-up an existing Isa, be aware that you can't open a new one unless you agree to transfer the entire pot.

Note that 'one stocks & shares Isa' refers to a wrapper, not each individual fund. You can open an Isa account with a firm like Hargreaves Lansdown, or Fidelity, or through This is Money's fund supermarket and then put cash into as many funds as you like. Again, though, you must not exceed the £10,200 limit (rising to £10,680 on 6 April). Any money held in cash Isas will be deducted from the stocks & shares allowance.